Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Friday, November 2, 2007

Continuing Troubles at Merrill and Citi

Merrill Lynch issued a denial in response to today's Wall St. Journal article alleging that the firm concealed losses in transactions with hedge funds:

This morning, an article in The Wall Street Journal about Merrill Lynch & Co., Inc., (NYSE: MER), relying on unidentified sources, speculated about inappropriate transactions that "may have been designed" to avoid write-downs that "might have been" required earlier in the year. The story is nonspecific and relies on unidentified sources. We have no reason to believe that any such inappropriate transactions occurred. Such transactions would clearly violate Merrill Lynch policy.

On another front, the WSJ reports that Citigroup has called an emergency board meeting for this weekend, possibly to discuss further write-downs.  WSJ, Citi to Hold Emergency Board Meeting.

November 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Charter Sues Former Law Firm for Associate's Mistake

Charter Communications can sue its former law firm, Irell & Manella, for malpractice, a federal district court judge ruled, despite the law firm's claim that it could not mount an effective defense.  Charter was founded by Microsoft's Paul Allen, and Allen, not a party to the lawsuit, is a client of Irell.  Charter alleges that because of a mistake by an Irell associate Allen ended up purchasing a different kind of security and owning a smaller-than-expected amount in another corporation, resulting in $150 million in damages.  CFO.com, Green Light for Legal Malpractice Suit.

November 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC proposes electronic Investment Co. Exemption Applications

In the "it's about time" department -- the SEC proposes that mutual funds and other companies seeking exemptions under the Investment Company Act of 1940 submit their applications electronically so investors can access them sooner and the Commission can consider them more quickly.  The SEC’s proposed rule amendments would require that new or amended applications for orders under any section of the Investment Company Act and Regulation E filings of small business investment companies and business development companies be filed as electronic submissions. Internet availability of these exemptive applications on the Commission’s EDGAR system would improve public access, which in the past has been limited to obtaining hard copies through the SEC’s Public Reference Branch or through private services for a fee.

November 2, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Ugly Dispute at ACS Goes Public

The dispute between Affiliated Computer Services Chair Darwin Deason (who also owns 42% of the stock) and the company's (now former) independent directors turned ugly, as Deason, on behalf of ACS, demanded the directors' resignations in an angry letter, and the directors, in turn, announced their resignations in an equally angry letter.  The dispute stems from a LBO proposed by Deason, along with Cerberus Capital Management, which the directors did not accept, but instead (pursuant to its Revlon duties) pursued alternatives.  Last week the LBO was withdrawn because of the credit crunch, and Deason, and some big shareholders, are blaming the directors for the delay.  Yesterday the directors brought suit in Delaware seeking a declaratory judgment that they had not violated their fiduciary duties.  Meanwhile, there's an ongoing investigation into backdating stock options that resulted in the CEO and CFO leaving the company.  There are also allegations of conflicted law firms.  WSJ, A Failed Deal At ACS Sets Off A Board Brawl; NYTimes, A Bitter Rift When a Boss Is the Buyer.

November 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC Investigates Merrill Lynch's Mortgage Troubles

Merrill Lynch just can't stay off the front pages, and it's not good news.  The Wall St. Journal reports that the SEC is investigating whether the company knew last summer that its losses with mortgage securities were bigger than it disclosed at the time.  It is also looking into how Merrill Lynch valued its securities.  Apparently, Merrill has been making deals with hedge funds in order to postpone losses.  Enron all over again?  WSJ, Deals With Hedge Funds May Be Helping Merrill Delay Mortgage Losses.

November 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Verizon Announces "Say on Pay" in 2009

Verizon Communications announced that it would allow its shareholders an advisory vote on executive compensation, but not until the annual meeting in 2009.  Last May a majority of Verizon shareholders voted in favor of a "say on pay" proposal, as have shareholders at a number of companies recently.  NYTimes, Verizon to Put Executive Pay to Shareholder Vote.

November 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Thursday, November 1, 2007

Dodd Urges SEC To Postpone Shareholder Proxy Access Decision

Will the SEC go forward and resolve the issue of the competing shareholder proxy access proposals in time for the spring proxy season, as Chair Cox has maintained he wants to, despite the fact that the Commission is not at its full-5 person membership?  Annette Nazareth, the sole remaining Democrat who has announced she is leaving by year end, has indicated that the Commission should wait.  Senate Banking Committee Chair Christopher Dodd and eight other Senate Democrats have sent a letter to the SEC urging it not to go forward with either proposal until the Commission has five members.  InvNews, Senators urge Cox to nix proxy proposals.

November 1, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Where was Bear Stearn's CEO This Summer?

During critical days this summer, when two of Bear Stearn's hedge funds were imploding, Bear Stearn's CEO James Cayne was playing golf and bridge.  For this he gets paid $34 million (in 2006)?  Maybe he should have been consulting with ex-Merrill Lynch CEO Stan O'Neal (who walks away with $170 million) on how to manage risk.  WSJ, Bear CEO's Handling Of Crisis Raises Issues.

November 1, 2007 | Permalink | Comments (0) | TrackBack (0)

Tyco Court Will Consider $460 Million Fee Request

The federal court in the Tyco securities class action will be asked to approve the $3.2 billion settlement tomorrow, and three plaintiffs' firms have asked for an award of attorneys fees of $460 million, or 14.5% of the settlement.  The customary percentage in mega settlements is 10%.  Three institutional investors have objected to the size of the award.  WSJ, Law Firms to Ask For $460 Million In Tyco-Case Fees.

November 1, 2007 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 31, 2007

Ingersoll-Rand Settles FCPA Charges in Iraq Oil for Food Program

The SEC filed Foreign Corrupt Practices Act books and records and internal controls charges against Ingersoll-Rand Company Ltd., a New Jersey-based industrial equipment company, in the U.S. District Court for the District of Columbia. The Commission's complaint alleges that from 2000 through 2003, four of Ingersoll-Rand's subsidiaries entered into contracts in which $963,148 in kickback payments were made and $544,697 in additional payments were authorized in connection with sales of humanitarian goods to Iraq under the U.N. Oil for Food Program (the "Program"). The kickbacks were characterized as "after-sales service fees" ("ASSFs"), but no bona fide services were performed. The kickbacks paid by Ingersoll-Rand's subsidiaries and third parties diverted funds out of the escrow account and into an Iraqi slush fund. The contracts submitted to the U.N. did not disclose that the illicit payments were included in the inflated contract prices. The complaint also alleges that $8,000 in "pocket money" and travel expenses were paid to Iraqi government officials in connection with a trip to Italy.

Ingersoll-Rand, without admitting or denying the allegations in the Commission's complaint, consented to the entry of a final judgment permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, ordering it to disgorge $1,710,034 in profits, plus $560,953 in pre-judgment interest, and to pay a civil penalty of $1,950,000. Ingersoll-Rand is also ordered to comply with certain undertakings regarding its FCPA compliance program. Ingersoll-Rand will also pay a $2,500,000 fine pursuant to a deferred prosecution agreement with the U.S. Department of Justice, Fraud Section.

October 31, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Merrill Lynch Post-O'Neal

Besides looking for a new CEO, Merrill Lynch needs to deal with the regulators.  SEC enforcement reportedly is looking into the adequacy of Merrill's disclosures about its losses in the credit markets and how it values its holdings of CDOs and subprime mortgages.  Merrill reported better-than-expected earnings for the second quarter in mid-July as the market's troubles were intensifying.  Then on Oct. 5 it announced a projected $5 billion loss which turned out to be $8.4 billion by Oct. 24.  A shareholders class action has already been filed.

Meanwhile, Stan O'Neal walks away with $161.5 million.  He doesn't get a bonus for 2007.  WSJ, Merrill's Job:Cleaning Up And Moving On;

October 31, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Countrywide CEO Sued Over Stock Repurchases

A pension fund filed a shareholders derivative suit against Countrywide Financial CEO and 13 current and former directors in California.  The suit alleges that the corporation repurchased $2 billion of its shares in order to allow executives to sell $842 million of their personal holdings at inflated prices from April to October 2007.  NYTimes, Pension Fund Sues Countrywide Officers.

October 31, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 30, 2007

Court Finds Former Corporate Counsel Committed Securities Fraud

On October 25, 2007, the federal district court in New York, after a trial, issued a decision finding Moneesh K. Bakshi, former corporate counsel to Ramoil Management Ltd., liable for securities fraud for having submitted false and misleading documents to the SEC, specifically: (1) submitting a false and misleading Form10-KSB for the year ended December 31, 1999, which included a phony audit opinion; and (2) filing four false and misleading Forms S-8, which fraudulently issued shares of Ramoil stock to four offshore consulting firms in exchange for non-existent "consulting services," and included false attorney opinion letters by Bakshi. The Court enjoined Bakshi from future violations of the securities laws, ordered him to pay a $100,000 civil penalty, and enjoined Bakshi from representing clients before the Commission and filing any documents with the Commission.

October 30, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC's Donohue Testifies on Mutual Fund Disclosure Reform

Andrew J. Donohue, Director, Division of Investment Management, SEC, testified on Improving Disclosure for Workers Investing for Retirement before the Ways and Means Committee, U.S. House of Representatives, on October 30, 2007.  His remarks focused on the SEC's mutual fund disclosure reform initiatives.

October 30, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC and FINRA Sponsor Outreach Compliance Program

The SEC and FINRA announced a new initiative to further promote strong compliance practices at broker-dealer firms for the protection of investors.  The CCOutreach BD program will help broker-dealer chief compliance officers (CCOs) ensure effective communication about compliance risks, maintain effective compliance controls, and foster strong compliance programs within their firms.

The SEC's Office of Compliance Inspections and Examinations, in coordination with the Division of Market Regulation, will sponsor the CCOutreach BD program together with FINRA. The program will feature a National Seminar at SEC headquarters in Washington, D.C., tentatively scheduled for March 2008, as well as regional compliance seminars across the country. These meetings will provide the opportunity for open discussions on effective compliance practices and timely compliance issues in ever-changing markets.

October 30, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

FINRA Fines Oppenheimer for Inaccurate Breakpoint Data

FINRA fined Oppenheimer & Co. Inc. $1 million for submitting mutual fund breakpoint data to FINRA that the firm knew to be inaccurate, as well as for related supervisory deficiencies. FINRA also ordered the firm to engage an independent consultant to evaluate its policies, systems and procedures for responding to information requests from regulators.  FINRA's (then NASD) initial request to Oppenheimer for a breakpoint assessment was made in March 2003 as part of a review of approximately 2,000 broker-dealers that sold front-end load mutual funds in 2001 and 2002. That request followed findings by NASD and other regulators that showed that nearly one in three mutual fund transactions in front-end load mutual funds that appeared eligible for a breakpoint discount did not receive one. 

FINRA found that on two occasions, June 11, 2003, and Nov. 20, 2003, Oppenheimer submitted inaccurate and incomplete data in response to NASD's request to perform a self-assessment of its mutual fund breakpoint discount practices. Each of Oppenheimer's self-assessment submissions so completely and fundamentally failed to comply with the regulatory request that FINRA was unable to rely on Oppenheimer's data to analyze the firm's breakpoint compliance both in absolute terms and in relation to the approximately 2,000 other registered firms that contemporaneously submitted breakpoint self-assessments.

Oppenheimer settled the matter without admitting or denying the charges, but consented to the entry of FINRA's findings and dismissal of charges against Oppenheimer CEO Albert Grinsfelder Lowenthal.

October 30, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Baseball Player vs. Broker -- Who's Worth More?

Who's worth more, the soon-to-be former New York Yankee Alex Rodriguez or the soon-to-be former Merrill Lynch CEO Stanley O'Neal?  Rodriguez reportedly is looking for $30 million a year and is willing to give up the three-year potential of $91 million remaining on his Yankees contract; NYTimes, Rodriguez Not Greedy by Standard of Wall St.  Meanwhile, the less successful O'Neal, whose resignation has not yet been announced, reportedly is negotiating tough for his exit package, expected to bring him about $160 million.  He earned about that amount on his nearly five years on the job.  WSJ, O'Neal's Last Big Deal as Chief Executive: Determining the Terms of His Exit Package.

October 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Lerach Will Be Sentenced in January

William S. Lerach pleaded guilty yesterday to conspiracy to obstruct justice for concealing illegal payments to a named plaintiff in a securities class action.  Sentencing will occur in January.  The plea agreement with Mr. Lerach does not include an agreement to cooperate with the government.  The law firm Milberg Weiss and Mr. Weiss remain defendants in the criminal case.  NYTimes, Leading Class-Action Lawyer Pleads Guilty to Conspiracy

October 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

NYSE-Joint Venture to Encourage Block Trades

The NYSE and a consortium of 12 brokerage firms announced a joint venture to encourage block trades again.  It will specialize in matching orders for 10,000 or more shares privately.  The NYSE wants the lucrative block trades business, and the big investors want greater ease and more privacy.  WSJ, Shhh, NYSE Aims to Bring Back Blocks.

October 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Monday, October 29, 2007

O'Neal Will Get About $159 Million to Leave

What will soon-to-be former Merrill Lynch CEO Stanley O'Neal receive after the corporation lost $8.4 billion?  The estimate for his walk-away compensation amounts to $159 million --- about $30 million in retirement benefits and another $129 million in stock and options.  This is in addition to the approximately $160 million in total compensation during his almost-five years on the job.  NYTimes, The Price of Any Departure Will Be at Least $159 Million.

October 29, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)